Going from Employee to Freelance - who did it?

Life Hacking
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Hello everybody!

I see that there are quite many software developers here and I’d like to know if any of you has already gone freelance/contractor. Has anyone such an experience to share?

I am considering this option myself but so far it is relatively new and fuzzy in my head so I am trying to find out what I will have to pay from my gross revenue:

  • First pillar : here I guess I would have to pay the equivalent to (employee contribution + employer contribution), so around 13%, right?
  • second pillar : i will have to contribute for the maximum mandatory insured salary (84’600 - insured first pillar = 59’925). Since i am in my mid thirties, I expect the contribution rate to be around 7%, so 7% * 59’925 = CHF 4194 per year.
    Zürich taxes: i would expect the income tax rate to be around 18%.

Am i missing something else?

Ah, another question: have you created your own company to deal with your clients or have you used the services of a payroll (“umbrella”) company? Why? if you’ve chosen an umbrella company, what is usually their share cut from your revenues?

Thanks all!

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I switched to freelancing, because it offers much higher earnings. I do not have a company though. You could say that the company I “work for” is an umbrella company, but it’s a bit more than that. The boss helps me find projects and they negotiate the rate in my name. They take care of all the contracts and taxes and on paper I have a normal employment contract, but end of year comes a big “bonus”, which covers the difference between what I was already paid out and what I actually billed. The boss takes only 10%, and it’s definitely not all profit for them, as they need to do all the accounting etc. Boss is sure that if I had my own firm, I would pay much more than 10%.

Also, the clients do not like to sign actual freelancers (one person companies), because according to the law they are responsible to see that all the contributions for their external contractors are paid, or sth like that. So with a few external partners it’s easier than with hundreds of freelancers.

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I’d love to know how to become Freelance as well, not for the taxes part though. I’m more interested in how to find clients :slight_smile:

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I’m considering that as well, but first I need to learn German to be able to do the paperwork. There are three reasons for me - first I’d like to have more off time and it seems that breaks between contracts would be best for that, second I’d like to get the higher salary rate and third I’d like to optimize taxation.

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@Bojack : Thanks for sharing your experience! It is interesting to see how you setup your business :slight_smile:
Would you mind to share, out of your daily billing, approximately which proportion goes into your pocket after social contributions and taxes? (a rough back-of-the-envelope estimate is more than enough…)

I am not afraid about finding my first client (I work in a very niche industry), but finding many clients would be more difficult given the side of my market. So before making a jump, i just want to make sure the revenue leap is in line with what I expect :smiley:

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So just as an estimate:

  • 10% goes to the boss
  • 7% goes to 2nd pillar
  • 8% goes to AHV
  • 15% goes to income tax
  • 10% are benefits and tax deductions (business lunch, abo, phone, laptop)
  • 50% is net salary

So I guess in total around 2/3 of the billed amount stays with me and 1/3 is gone.

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Thanks for the cost breakdown! It is much clearer to me now…

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Well…I think there are much more ways to win from being a freelance:

  • you can take the 2nd pillar to your vested account (maybe soon in March with VIAC) and have much higher expected returns than 1% per year
  • you can put more money into 2nd and 3rd pillar as I remember (till around 40k per year I think), tax free
  • deduct more as expenses from income tax
    So, apart from the regular higher income, also the opportunity cost for 2nd pillar money and tax advantages need to be taken into account.

What is not clear to me is how do you get this self employed status, just by using an umbrella company? Or do you need to have more than one client per year? @Bojack: What is your experience here? How could I transform my current employee contract to a freelance one. I think my current employer will be open for this, but not sure what will be the impact to it? I would need to file some bills to other parties during one year, if so, how many different customer…

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Can you elaborate on this?

Let’s differentiate between the company contribution (before social contributions) and your own contributions (after social contributions). The former is better, because then you pay fewer social contributions. In my case, the contribution is paid not only for the mandatory part of my salary (24’000 - 84’000), but also for the supplementary part (my salary above 84’000). This is company policy and I can’t do anything about it. I’m not happy with it, because yeah, I save some taxes, but then my return is like 1% per year and I will only see that money when I’m 60.

Not sure what you mean, but what I find cool is that I decide myself what type of phone, laptop & rail pass I need for my work, and these things get booked on company side. Then my “bonus” is lower, which saves taxes and contributions.

I don’t have the self employed status. Officially, I have a completely normal employment contract with a salary. The difference is, that every invoice that is paid by the customer for my work is booked in my own subaccount by my company. They pay my salary and my taxes from that account. When I buy a company laptop, the money comes from there. At the end of the year, the balance of this account has to be 0, so the remainder is paid out to me as a bonus.

This system has a trust component in it. you have to trust the employer that he will pay you your bonus, and he has to trust you that you will make enough income in a year to cover your salary.

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That sounds pretty cool. What are these kind of companies called? How can I find one and see if there is a mutual interest?

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Well… the most obvious place would be to talk to people you work with. Are all of them internal employees, or are there some external contractors? If yes, who do they work for? What model do they have? Once you worked in enough places and talked to enough people, you may find a right match.

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Well, for me are 2 types of freelancers: self-employed and employed through an umbrella company. The second type is a normal employee from the taxes and status. The first one is more special, because will not have (as I know) the need to put in in 2nd Pillar, so you can either cash it out or put it into a vested account, like VIAC and cash it out when you dont earn later on. But in this case you need to take care of your own accounting or hire a small company to do this for you. Because you dont have a 2nd pillar anymore, you can also max out the 3rd pillar (I think somewhere between 30k and 40k) also tax free.

Well, as an employee you can deduct max 12k per year for education for example (fights, hotels to a conference…). As a self employed you can deduct more as business meetings, like travel in Japan for 2 weeks to have 3 meetings with different people for 1h each…and it can be an expense as I know.

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What are you working? There are a lot of online platform for programmers, designers, translators, … - even in Switzerland - e.g. freelancer jobs Cold-calling is a thing of the past;-)